Legal Article - Employment Law

Employment Law: Redundancy Rights

Redundancy is an issue which can affect any business at any time. Employers are obligated to follow a redundancy procedure which is usually outlined within the company handbook, created by the Department of Trade and Industry.

It is essential that each organisation has an implement redundancy policy to ensure the rights of employees are not breached and to ensure that redundancies and the selection process is fair. There are many reasons for why a business may need to reduce its workforce mainly due to financial concerns.

The law surrounding redundancies and payments are constantly changing to keep in line with the changes in other aspects of Employment Law. It is advantageous for Employers and members of Management to ensure they are up to date on all areas of this topic.

Definitions

• Where the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed; or

• Where the employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed; or

• Where the requirements of the business for the employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish; or

• Where the requirements of the business for employees to carry out work of a particular kind, in the place where they were so employed, have ceased or diminished or are expected to cease or diminish.

Simple redundancies occur, for example, when a business closes down, moves premises or has to cut its workforce on the loss of a large part of its business. A redundancy can also occur where the work has not diminished, but either employees are no longer required to do the work because of mechanisation or use of subcontractors, or, because of a reorganisation of the work being done.

For example, if the work is being done in a service department by a service manager, receptionist, foreman and charge-hand could be better organised and done by three instead even though the same amount of work needs to be done.

There is no such thing as self-imposed redundancy, i.e. because a person is so poor at doing their job, they have, therefore, made themselves redundant.

Nor is there a redundancy situation where:
• The same amount and type of work is redistributed among the same number of employees even if certain jobs disappear

• the same work is done under different terms and conditions of employment e.g. an employer withdraws free transport to work because it is uneconomic and some employees lose their jobs because they are no longer able to get to work; or introduction of new shift systems; or change from part-time to fulltime work (but change from full-time work to part-time may result in a redundancy situation).

• Same work done by different kind of employee e.g. employing someone of lower status or grade. A warning of future redundancies without a specific termination date again is not a dismissal for redundancy and if an employee leaves following such a warning it will be a resignation.

Reason for Dismissal of An Employee

The law presumes that where a dismissal occurs and the employee seeks a redundancy payment then the reason for dismissal is redundancy. If the dismissal was not wholly or mainly due to redundancy the onus is on the employer to prove this, an industrial tribunal is only concerned with whether the reason for the dismissal was redundancy; investigate whether the reason put forward by the employer is genuine.

If industrial action causes the closure of a business and employees thus lose their jobs, the reason would be redundancy. Where the employer asks for volunteers for redundancy in a genuine redundancy situation, voluntary redundancy would qualify as a redundancy dismissal.

Voluntary retirement due to a reorganisation but where no loss of jobs occurs would not be a redundancy dismissal.

If a fixed-term contract is not renewed because of redundancy this would be a redundancy dismissal, unless there is a written clause in the contract whereby the employee agrees to forego their redundancy rights. This is only valid for contracts of two years of more and if the contract runs the full term.

When fixed-term contracts of apprenticeships or training expire and the employer cannot offer further employment, the reason for the contract terminating is not redundancy, but simply that the contract finished i.e. “a once in a lifetime agreement”.

NOTE: Contracts of apprenticeship or training that finish when the apprentice or trainee achieve a qualification (e.g. NVQ Level 3) and not simply because a fixed period of time has expired, would not be classed as a dismissal or resignation, but simply termination by performance.

Redundancy and Suitable Alternative Employment

When alternative work is available it must be offered to a redundant employee, otherwise it would be an unfair dismissal. On the other hand if a redundant employee accepts an offer of alternative employment the employer is not liable for a redundancy payment.

Nor is the employer liable if an employee unreasonably refuses an offer of suitable alternative employment, but would have to make a redundancy payment if the offer was of unsuitable employment or the employee’s refusal was reasonable.

If an employer wishes to retain an employee who has been given notice of redundancy, they must make an offer of suitable alternative work before the employment ends. The offer need not be in writing (although preferably it should be) but must specify the main terms of the new job such as remuneration, status and job description.

The new job must start either immediately as the old job comes to an end or after an interval of not more than four weeks. Where the new job is different, or if the terms and conditions are different, the employee is entitled to a trial period of up to four weeks. An employee will lose entitlement to a redundancy payment if they unreasonably refuse the new job offer.

A refusal is likely to be unreasonable if the new job is similar to the old one, the terms and conditions of employment are the same or better, or job prospects and status is enhanced.

On the other hand a refusal will be reasonable if the new job requires different skills, abilities and knowledge, there is a reduction in pay, more travelling time is required, longer or more inconvenient hours are involved or there would be a loss of status and poorer job prospects.

Each case has to be considered on its merits as to what is suitable for one person may not be so for another e.g. extra travelling time may not be a problem for a young single person but may be for a married person with extensive family responsibilities.

The trial period of four weeks can be extended for the purpose of retraining the employee provided the agreement for an extended trial period;

• is in writing and made before the employee starts work under the new contract

• specifies the date of the end of the extended trial period

• specifies the terms and conditions of employment that will apply after the trial period ends.

If during the trial period either party gives notice to terminate the contract, the employee is still entitled to a redundancy payment.

Voluntary Redundancy and Early Retirement

Prior to the consultation stages, employer’s must offer all staff the opportunity to take voluntary redundancy. This will save the number of compulsory redundancies.

No employee can be coerced or forced to take voluntary redundancy. It must be purely their own decision and the employer must agree to it. If numerous staff volunteer, employers can select the appropriate number from the candidate pool.

The employer should state in their redundancy policy that the management have the authority to decide who should be allowed to take voluntary redundancy. This safeguards the company against potential issues regarding skill imbalance amongst the workforce.

Any selection made within this smaller candidate pool must be fair and justifiable as with compulsory redundancies. Employers can offer enhanced payments for non compulsory redundancies but they must not be perceived to be a bribe or tool of coercion.

Changes to current law has enabled the current retirement age of 65 to be scrapped. The phasing out of this regulation began in April 2011 but as the 6 month notice period is still applicable, no compulsory retirements can now be made without objective justification.

Early retirement, therefore, will now be on a voluntary basis. As with voluntary redundancy this can be offered as an alternative to compulsory redundancy prior to the consultation period. Incentives can be offered in order for staff to consider this option although employers need to be mindful that they may have to fund a pension for longer than planned.

Early retirement, must be a genuine choice made by the employee free from coercion and both parties must agree to it. If this is followed then it will not be classed as a dismissal or a statutory redundancy; thus neither procedure will apply.

Unfair Redundancy Dismissal

Even where a genuine redundancy situation applies, some employees may be able to complain that making them redundant was unfair (i.e. unreasonable). This normally occurs when the employer either:

• Selects them unfairly i.e. should have made someone else redundant
• fails to consult with the employee before telling them that they are redundant
• does not make an offer of alternative employment when there are other vacancies.

(i) Unfair Redundancy Selection

Selection for any of the following reasons will automatically be unfair if the employee

• was, or proposed to become a trade union member

• participated or proposed to participate in the activities of an independent trade union at an appropriate time

• was not, or refused to become or remain, a member of any union or of a particular union

• was pregnant or has given birth, or for any other reason connected with her pregnancy or childbirth

• Disabled (but able to do the job satisfactorily)

• Because of their marital status, race, colour, nationality, sexual orientation and gender, ethnic origin. In Northern Ireland, the above applies as does making an employee redundant purely due to their religion or political beliefs.

Otherwise selection could be unreasonable if the “pool” from which the selection was made was unreasonably defined, and/or the selection criteria used were unfair or unclear.

Tribunals have concluded that the following factors are relevant in deciding the “pool” of employees from which some will be selected for redundancy:

• Whether other groups of employees are doing similar work to the group from which selections were made

• Whether employees’ jobs are interchangeable

• Whether the employee’s inclusion in the unit is consistent with his or her previous position

• Whether the selection unit was agreed with a recognised union or employee representatives.

Selection criteria used must be capable of objective assessment by reference to such data as attendance records, efficiency, length of service, skills and performance and probably age. Last in, first out (LIFO) is a commonly used criteria, but could be considered to be indirect sex discrimination as women more often than men have short service. Vague criteria such as “needs of the business”, “balance of skills” or “attitude to work” without further refinement may be too subjective to be reasonable.

(ii) Individual Redundancy Consultation

Before any person is selected as redundant, all those who are potentially liable must be individually consulted in advance, unless the employer could reasonably conclude in the light of the circumstances known to them at the time of dismissal that consultation would be utterly useless.

In most cases the employer is expected to give those consulted a fair and proper opportunity to understand fully the matters surrounding the possible redundancies, an opportunity for them to consider and express their views on these matters, and, thereafter, consider those views properly and genuinely.

It is not sufficient to simply give employees a letter warning of impending redundancies and then after the employee has been selected for redundancy to offer to discuss matters. There is no fixed time as to when consultations should begin except that it should be “as soon as practical”.

(iii) Reasonable Offer of Alternative Employment

An employer is expected to seek alternative work for the employee so far as is reasonable and where there is alternative work to give the employee an opportunity to decide whether they would like to be considered for it.

The employer does not have to create alternative work, but where there are vacancies these must be offered to the proposed redundant employees no matter how unlikely it might seem that they would be interested in those vacancies, providing they are capable of doing the job after reasonable training if necessary.

Consultation with Trade Unions’ or Employee Representatives

Where an employer proposes to make redundant at one establishment between 20 and 99 employees within a 90 day period, they must consult with either a recognised independent trade union or elected representatives of the affected employees at least 30 days before the first redundancy takes effect.

If the employer is proposing to make 100 or more employees redundant, they must consult at least 90 days before the date of the first dismissal. These are minimum time periods, but the overriding requirements are to consult in “good time” wherever practical.

Employee representatives must be elected and employees can elect whoever they wish amongst the workforce. It is up to both the employer and the employees concerned to agree between them how the elections will take place. There is no requirement to have a “standing” consultative committee, but the employer should consider

• That the arrangements adequately cover all categories of employees who are to be, or might be, made redundant and provide a reasonable balance between the interests of different groups

• That the employees have sufficient time to nominate and consider candidates

• That the employees (including any who were absent from work for any reason) can freely choose who to vote for

• Whether the company has a normal practice for similar elections and should only depart from this if there are good reasons for doing so.

Elected representatives and trade union representatives have the right not to be

• dismissed on the grounds they are representatives, nor

• subjected to any detriment by the employer on the grounds of their status as representatives and to have reasonable time-off with pay for these specific purposes.

The duty to consult arises where an employer is contemplating collective redundancies and consultation must begin as soon as practicable after the election of representatives. Prior to the consultations the employer must disclose to the trade union or elected representatives in writing:

• The reasons for the proposals

• The numbers and descriptions of employees it is proposed to make redundant

• The total number of employees of that description employed at the establishment in question

• The proposed method of selecting the employees who may be dismissed

• The proposed method of carrying out the dismissals, including the period over which the dismissals are to take effect.

Consultation must be carried out with a view to reaching an agreement.

An employer does not have to consult where it is impracticable to do so e.g. sudden closure of the business due to extreme financial pressures, or a fire. Reasons to do with ignorance, a wish not to upset the morale of the employees, or the need for secrecy to protect the business are not acceptable reasons for failing to consult.

A failure to consult could result in the employer having to pay a protective award to each of the employees for a maximum period of 30 days if 20 or more employees are to be made redundant and 90 days if there are 100 or more redundancies in one establishment. The amount of the protective award is one week’s pay for each week of the protected period.

This in addition to any pay due under the employee’s contract of employment.

These consultation provisions apply to any dismissals for a reason, or reasons, not related to the individual concerned. In other words, if an employer proposes to dismiss employees as a result of changes to work practices and 20 or more are affected the obligation to consult applies (i.e. the definition of redundancy is widened).

If proposed redundancies falls between 20 and 99, employers must inform the relevant organisations 30 days prior to the first redundancy taking place. If the number of redundancies reaches 100+ then the organisations must be contacted within 90 days. If this rule is breached, then a £5000 penalty fine will ne incurred.

Redundancy payments

Any employee must complete 2 years service before being eligible for redundancy payments.

For each complete year of service up to a maximum of 20, an eligible employee should receive:

• For each year of service at age 18 or over, but under 22 - half a week’s pay
• For each year of service at age 22, but fewer than 41 - one week’s pay
• For each year of service at age 41, but fewer than 65 - one and one half week’s pay.

The above weekly pay figure is subject to a statutory maximum of £400 (from 01/02/11) and service is counted backwards from the date the redundancy takes effect.

The employer must give the employee a written statement showing how the payment has been calculated; at or before the time the redundancy takes effect. Where the employee works irregular hours then the redundancy payment is based on an average weekly payment for the twelve weeks prior to redundancy

Short-Time and Lay-Off

An employee who is put on short-time working (i.e. due to a reduction of work the employee’s pay falls below half the normal rate) or laid-off (i.e. where the employee’s pay depends on the provision of work and no work is provided that week) may be entitled to a redundancy payment.

Once an employee has been on short-time working or laid off for:

• Either four or more consecutive weeks, or
• a series of six or more weeks, of which no more than three were consecutive, in a period of 13 weeks the employee can claim a redundancy payment.

Once the above conditions have been met, the employee must give his/her employer written notice of intention to claim a redundancy payment within four weeks of the last week of lay-off or short-time working.

If the employer does not wish to pay the redundancy payment, written counter notice must be given within seven days of the date the employee’s notice was served. The employer must state that there is a reasonable expectation of returning to normal working (i.e. no short-time or lay-off within the next 4 weeks for a period of not less than 13 weeks).

The employee must resign, giving a week’s notice or more if the contract requires it, to terminate the contract of employment within the following time limits:

• Where no counter notice has been served by the employer, within three weeks of the expiry of the seven day period
• Where counter notice is served but then withdrawn, within three weeks of the employer’s service of the withdrawn notice
• Where counter notice has not been withdrawn, within three weeks of the tribunal’s decision.

Weeks lost through strikes or lock-out, no matter where these take place, will not be taken into account when applying these redundancy pay provisions. Weeks lost through any other form of industrial action do count.

Miscellaneous Provisions Act 2009

Under the Miscellaneous Provisions Act 2009, if the employer accepts liability for a redundancy payment and makes a satisfactory payment at or soon after the date of dismissal, there is no need for the employee to submit a formal claim. In any other case, if an employee does not make a written claim for a redundancy payment to the employer or make an application to an industrial tribunal within a period of six months beginning with the date of termination of the contract of employment, then the employer in most cases ceases to have an obligation to make a payment.

If the employer has cash-flow problems so serious that making the redundancy payment would put the future of the business at serious risk, arrangements can be made by the Department of Trade and Industry to pay the employee direct from the Redundancy Fund.

The employer must show that he cannot get any further credit. It is not enough merely to show that the firm is trading on an overdraft. The employer will be expected to pay back the amount owed as soon as possible, if necessary in instalments. If the employer is insolvent, the payment is made by the Department and the debt is recovered from the assets of the business.

Employers must notify the Department of Trade and Industry of proposed redundancies (on Form HRI) at least 30 days prior to the first dismissal where 20 or more employees are to be made redundant over a 90 day period, or at least 90 days where 100 employees or more are affected over a 90 day period.

What is a Fair Redundancy Procedure?

Responsibility for deciding the size of the work force rests with management. But before taking the final decision to make any substantial reduction, management should consult employees or their representatives, unless exceptional circumstances make this impossible.

It may be sensible for employees to organise elections for employee representatives on a “just in case” basis well before any redundancies are contemplated. Employers may wish to set up a plan for organising elections at short notice. Certainly an employer should ensure the invitation to elect representatives is given sufficiently far in advance to enable consultation to begin in good time.

If the employees are slow in choosing representatives, making it impossible to start consultations in good time, it will probably be sufficient for the employer to consult as soon as reasonably practicable after the representatives are elected.

An agreed system for the elected employee representatives to report back to the employees whose jobs are under threat, covering accommodation and other facilities needed, could be helpful to the employer when an acrimonious redundancy programme is announced.

A policy for dealing with reductions in the work force, if they become necessary, should be worked out in advance so far is practicable and should form part of the undertaking’s employment policies. As far as is consistent with operational efficiency and the success of the undertaking, management should, in consultation with employee representatives, seek to avoid redundancies by such means as:

I. restrictions on recruitment;
ii. Retirement of employees who are beyond the normal retiring age;
iii. Reductions in overtime;
iv. short-time working to cover temporary fluctuations in manpower needs;
V. re-training or transfer to other work.

If redundancy becomes necessary, management in consultation, as appropriate, with employees or their representatives, should:

I. gives as much warning as practicable to the employees concerned and to the Department of Trade and Industry;

ii. Consider introducing schemes for voluntary redundancy, retirement, and transfer to other establishments within the undertaking, and a phased rundown of employment;

iii. Establish which employees are to be made redundant and the order of discharge;

iv. Offer help to employees in finding other work and allow them reasonable time off for the purpose;

V. decide how and when to make the facts public, ensuring that no announcement is made before the employees and their representatives and trade unions have been informed.

A redundancy procedure checklist which you may find helpful is as follows:

1. Ensure that there is in fact a possible redundancy (job(s) not person(s)). Can redundancy dismissal be avoided by restrictions in new recruitment, early retirement, cuts in overtime working, short-time working, re-training or transfer, etc?

2. Consult and warn all those employees who may be affected

3. Taking into account any representations that may have been made, decide which job(s) (not person(s)) are to be made redundant;

4. Apply the agreed criteria (from the firm’s redundancy policy) to; identify the individual(s) likely to be dismissed or redundant. If no agreed criteria exist, decide upon and apply fair and objective selection criteria. Remember to consider volunteers, early retirement, transfer, etc.

5. Consult those employees likely to be affected about
• Their views
• Possible alternative employment

6. Offer alternative employment if available and assistance to affected employees in looking for new jobs.

Once a redundancy decision has been made you should confirm in writing the terms of the redundancy. A suggested draft letter is shown within the Employment Law Downloads.